Apples Troubled Outsourced Manufacturing Plant

Faculty of Engineering and the Built Environment

In collaboration with University of Sunderland

Department of Engineering and Technology

Apples Troubled Outsourced Manufacturing Plant

ASSIGNMENT 2 of 2

INDUSTRIES STUDIES
EAT 221
GROUP : 3
GROUP MEMBER:
Sunderland ID
LUKE RATNASINGAM
LOW JUE LE
MATTHEW MEA XINGHERNG

LECTURER

: Mr. Chris Chong

SUBMISSION DATE

: 9- 12-2014

Luke, Matt and Juele

139123568
129157485
129160854

SEGi ID
SCM-019517

SCM-017859
SCM-022685

Apples Troubled Outsourced Manufacturing Plant

1.0 Abstract
Apple Inc. is one of the largest communication technologies producing
company in the world that outsources manufacturing plants to under-developing
countries such as China and Mexico. This is when many things inevitably gone
wrong, such as violations of regulations and laws, and followed by a drop in product
quality. This report will explain about the companys systems in 3 types of
perspectives, outsourcing, manufacturing operations, and cost. From the outsourcing
perspective, a SWOT analysis regarding outsourcing approach will be given, along
with explanation of competitiveness of outsourcing in terms of customer satisfaction.
The operation perspective, however, explains about the manufacturing process of
computer production, and, the factors, effects and solutions to defective products.
Lastly, the cost perspective will disclose how important product quality is for Apple
Inc. financially and in reputation.

2.0 Introduction
Apple Inc. is an American multinational corporation that mainly designs,
develops and sells consumer electronics and personal computer. The company is
headquartered in Cupertino, California. Soon after the success of iPod, Apple Inc.
introduced iPhone to the market. The iPhone is so popular that it has sold over 500
million units and still counting worldwide to this date. (Sam Castello, 2014) To many
surprise, Apple Inc. does not manufacture all its products in-house back in America.
There is no way Apple Inc. managed to pull this off with manufacturing plants in
America. Hence, there is only one solution which is outsourcing. Outsourcing to other
manufacturing companies will ensure fast production and fast delivery to the
customers worldwide. Foxconn is the largest electronics contract manufacturer. The
company does not design and develop its own products but mainly focus on producing
electronics products for companies like Apple Inc., Blackberry, Amazon, Sony,
Microsoft and Nintendo.
In recent years, the outsourced manufacturing plants that Apple Inc. contracted
with have been giving them a lot of unwanted trouble. Suicides cases at Foxconn plant
and toxic exposures at Wintek touch screen factory in China. Apple Inc. has been
urged to act on the incident. Outsourcing does come with pros and cons. It has fast
production ability but the client company lost managerial power to the outsourced
company. Hence, the quality of the products is getting worse. Quantity is prioritised
over quality. Therefore, workers are working insanely long in a shift to meet the quota
of the day. Some even caught employing minors as their workers. Hence, the world
starts to question if outsourcing is the right way to achieve mass production.
This report is written to explain how outsourcing can affect a company like
Apple Inc. Outsourcing enable a company to grow immensely by taking care of their
non-core business but at the same it will bring about some negative issues. If Apple
chooses to manufacture all its products in-house in America, advantages and
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disadvantages are explained thoroughly below. Outsourcing can be competing on cost,
speed, quality and flexibility. Outsourcing is the only way to achieve mass production
at a fast pace with affordable price but the quality of the products are sacrificed. It
depends on what the client companies want at the first place. If they choose to
preserve the quality of their products, outsourcing is not the solution. If profits are
more important than quality, then outsourcing is only way. Each stage of
manufacturing processes of computer production is included. Improvements have
been suggested to minimise the outsourced troubles. Financial wise, the effects on
Apple because of the poor-quality products are discussed. Last but not least, if Apple
decided to execute close monitoring on the outsourced company, cost of the action
was also discussed.

3.0 Outsourcing perspective

Question 1
Outsourcing
Like the word suggests, outsourcing is basically a practice where a company
outsource certain job functions to some third-party company outside which specialize
in it. There are three types of outsourcing which are onshore, offshore and near shore
outsourcing. Onshore outsourcing is receiving services from someone outside the
company but within the same country. Offshore outsourcing is receiving services from
company from overseas countries with political stability and low labour costs. While
near shore outsourcing is receiving services from neighbouring countries. (Margaret
Rouse, 2014) Normally, the job functions being outsource are not part of the
companys core business. They will hence transfer the work to other company to
handle them. (Dian Schaffhauser, 2005) For example, Apple would buy most of its
electronic components from other manufacturing companies. Since Apple is a
company which designs their own gadgets and chipsets, they dont actually
manufacture them. This is where outsourcing came in rescue. It is sometimes more
cost-effective and affordable to purchase a good from commendable companies with
comparative advantages than it is to produce the good internally. (Investopedia, 2014)
This practice is widely used by either large or small companies because outsourcing is
a way to grow while restraining payroll and overhead costs. When a company
outsources its work to others, it does not need to pay third-party company employee
individually and their employee provident fund (EPF). Outsourcing deals with other
companies involve multi-year contracts. (Entrepreneur Media, 2014) Hence in long
run, it is a better deal to outsource than handling the work internally.

SWOT Analysis
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SWOT analysis is tool commonly used in marketing and business sector as a
method to identify Strengths, Weaknesses, Opportunities and Threats of an
organisation. This is a way of summarise the current state of the organization and it
helps the professionals to identify all the pros and cons elements that may affect any
proposed new actions. (R. Preston McAfee, 2014) Strength and weaknesses are
internal factors which means they are from within the organisation while the latter
two, opportunities and threats are external factor which an organization cannot
control.

Strengths

Weaknesses

Opportunities

Product designs
Captivating marketing strategy
Reputation
Cost-effective
Productivity increased

Patents are shared.

Language barrier
Product quality hard to
monitor.
Managerial power belongs to
service providers.

Threats

Growth in the size of company

Product unveiling and sales
can be done in several
countries at the same time.
Reach untapped markets
Increased sales.

Leaked patents.
Imitation of products
Rival brands
Customers complain.

Strength
Apple Inc. is well known for its product design and able to capture the heart of many
with their captivating marketing strategy. Their reputation to design well and sell well
is the reason why they have always been the leading pack of consumer electronics
company. For any company in the world, profit is the main priority. Therefore, Apple
Inc. like no other would like to maximise their profits. Hence, they dont manufacture
their own product but outsource to other third-party company like Foxconn. By
outsourcing, the production is fast and it is cost-effective.

Weaknesses
When Apple Inc. decided to outsource its product manufacturing to third-party
companies, they should expect their very own patents will be shared. The patents will
not be exclusive to them anymore. If the outsourced company is from overseas, there
is a possibility of language barrier exist. Language barrier will cause confusion among
client and service providers. Not to mention that with outsourcing, Apple Inc. loses

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the managerial control to the outsourced company. Hence, it is hard to monitor the
quality of products being manufactured.

Opportunities
There is no doubt that by outsourcing, the company will grow in size. With the
outsourced company in overseas, the products can be sent to countries where they are
far from home country. Hence, untapped market can be reached and sales will
continue to grow. With fast production, Apple Inc. can unveil and sell its product at
the same time in different countries.

Threats
When a company outsourced to a service provides, there is no guaranty that the
exclusive patents will not leaked to outsiders. This happened to Apple Inc. where
several patents have been leaked, some manufacturer came up with their own Apple
products imitation. There are always competitors in this booming business of
electronic gadgets. Hence, threat from rival company is inevitable. Outsourcing
cannot guaranty quality, therefore customers complaints against the products will
follow suit.

Domestic production
Domestic production simply means everything is produced locally in the home
country. Production does not involve any imports from foreign countries. Both human
and natural resources from home country are employed. The best thing is the
management of all processes during production is under the companys scrutiny.
However, it does come with pros and cons.

Advantages

Lower production costs.

Production costs often involve transportation costs. Manufacturer often need
to import certain raw material from overseas. So, if a certain natural resource
is abundant in home country, local production can be cost-effective.
Products quality increased.
Manufacturing the products locally will allow better monitoring of quality of
products produced. Managerial power is within the company. Direct
jurisdiction can be applied if any glitches are found.
Create job opportunities.
Products manufacturing require lots of human resources. Hence, by setting up
a manufacturing plant in home country, thousands of workers can put food on
their table. This will not only increase home countrys economy but also
increases the overall Gross Domestic Product (GDP).

Disadvantages
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Shipments to overseas.
Global marketing is a must for a company to succeed. Hence, the products
need to be available all around the world and that needs a lot of shipment fees.
Shipment fees are quite costly nowadays.
Large capital investment needed.
Building a manufacturing plant in home country is not easy as it sounds.
Factory and equipment for production cost a lot to the company. If there is any
amendment to production process, entire line of production needs to be
changed. Hence, large investment is needed.
Higher wages.
In developed countries like US and UK, the government has set a minimum
wages for workers. Union laws are strictly applied and all workers are entitled
for paid leave and insurance. This causes the profit of company decrease as a
big portion of it has turned into wages for workers. This is one of the reasons
why company chose to outsource.

Question 2
Cost
One of the main reasons why company nowadays would prefer to outsource
rather than handling them internally is cost factor. It is undoubtedly true that it is
much cheaper to rent a factory and the workers than maintaining them yourself.
Outsourcing can saves a lot on labour costs. Take Apple Inc. for example, they chose
to outsource to Foxconn in China because of the workers wages. In 2010, the average
manufacturing wage in China only cost $2 while in America it is a staggering $34.75.
If Apple chose to manufacture iPhone in-house, the labour costs alone will cost them
$25 billion. This will completely wipe out their profit of $14 billion that year. Had the
iPhone was made in America, Apple will not be able to employ those highly-paid
engineer and designers to come up with new products design every year. Now
imagine if Apple manufactures all their products in America, Apple might have
bankrupted a long time ago. If they wish to sustain, they will have to sell their
products at a higher price tag. Higher price tags mean fewer sales. Hence, they have
no choice but to turn to outsourcing. (Baizhu Chen, 2012)

Speed
Outsourcing offers greater speed of production to the client company. The time
zone difference between home country and outsourced companys country provides
great benefit. Even when a business is closed, the productivity is always moving
forward in the outsourcing factory. Take Apple for example, they themselves admitted
that China is able to provide engineers at a scale that America could not match. They
said approximately 8,700 industrial engineers were needed to supervise 200,000
assembly workers involved in manufacturing. The employment period only took 15
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days but 9 months are estimated in America. In 2007, Steve Jobs decided to have glass
screens for the iPhone only a few weeks before the products launch date. Most of the
suppliers in America said it was an impossible mission. However in China, once the
deal is finalised, 8,000 workers were woken up and started fitting glass screens into
iPhone frames in a 12 hours work shift. Within 96 hours, a staggering amount of
10,000 iPhones were produced each day. Steve Jobs once said that iPhone jobs will
not be coming back to America not because of cheap labour, but because Asian
factories produce fast, really fast and at a much larger scale and flexibility. (Charles
Duhigg, Keith Bradsher, 2012)

Quality
Outsourcing to third-party company always brings out products quality issue.
Quantity is often prioritised over quality and this is why outsourced products are
cheaper. Workers have to assemble shocking numbers of products each day. This
causes the quality to deteriorate. (Van Thompson, 2012) If company outsourced to
service provider, they have no power over human resources. Some poorly qualified
employee may be employed. Poorly-trained workers mean poor quality products.
Products may not be properly assembled and break easily. Therefore, companies must
carefully select, qualify, contract with and manage their outsourcing partners to ensure
products quality. The agreement between client and service providers should include a
section on quality assurance and defects management. This often requires crosstraining between companies. These aspects usually got neglected to save cost.
Furthermore, the definition of quality may not be the same for both parties. (Filippa
Setterwall, 2013) Hence, customers who received the products may not be satisfied
with the finishing. Take Apple iPhone 4 as example, these products by far suffered the
most quality issues. Not long after the phone went on sale, users had reported a yellow
discoloration of the screen that went off several days later. It was the glass lamination
glue not drying fully due to the speed of manufacturing. (Slash Jane, 2010) In
addition, the camera also suffered from yellowing problem. The white balance in
camera software had some glitches and caused the photo captured to be yellowish.
(Heather Kelly, 2010)

Flexibility
Nowadays, improving flexibility is just as important as cost-saving when it
comes to managed services provided by outsourced company to the clients. The
current business environments most companies face require them to act quickly and
changes direction frequently to respond to changing priorities and competition. With
the help of outsourced company, the client can focus more on their core-business.
(Michel Theriault, 2013) For example, Apple outsourced the production and assembly
of its products to other manufacturing company while its employee can concentrate on
producing greater chipset and product designs for future use. The contract
manufacturer might produce goods for more than companies and even competitors in
same business. Since the service providers have more production capacity, they can
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respond to sudden surge of production requirements better. The client just needs to
inform service providers to increase production instead of buying in extra equipment
to meet the demand. (Kenneth Hamlett, 2014) Sudden change of fitting glass screen
on iPhone 4 is a great example of flexibility provided by service providers.
Outsourcing provides flexibility to the client companies as they can change the
service providers if required. Changing an outsourced company in case of poor
performance can be done because most outsourcing deals include conditions for
change in requirement or contract termination. (Tutorial Reports, 2013)

4.0 Manufacturing / Operation Perspective

Question 1
Manufacturing Process of a Computer Production
A computer is a programmable machine that receives input which is also
called data, and manipulates the received data using operations and instructions
according to well-defined manipulative variable set of procedural information which
is otherwise known as a program. Computers can range from PCs (personal
computer) to high-end top of the range supercomputer which most companies and
government organizations use (Chin Chu Rong, 2010).
Large well-known companies such as IBM, Apple and Hewlett-Packard are
well known for their production of quality computers and other electronic devices,
these companies have many manufacturing plants to mass produce their product to be
sold internationally to customers (Chin Chu Rong, 2010).

Hardware

In general there are 2 types of assembly that are used in manufacturing a

certain product. The first method is called the Assembly Line Production which is
basically several people performing a given specific task which is then repeated and
once the task is done, it is then passed on to the next worker who is assigned a
different task and this is continuous until the product is completed and produced. This
method on average allows for 70 units of complete computers per day. The second
method of assembly is a complete single product assembly by one worker and this
method of assembly on average allows for the completion of 40 to 60 computers a
day. Out of these two methods, the Assembly Line Production is more efficient as
this helps a workers master a specific task and several people down the assembly line
will be able to check the work of the previous workers for any errors which indirectly
increases the quality of the finished product. (Chin Chu Rong, 2010)

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The first step in manufacturing a computer is to find a balance between the
consumer price index (CPI) and the practicality of the computer. The CPI is the
measure of change per time in prices that consumers pay for marketable goods and
services. The manufacturers do their best to produce the best product within a given
range of price to work with for the lowest cost of production. Once the designer has
finalized a specific computer design, the company will start ordering parts for that
specific model using high-quality material from either their own manufacturers or
other sources. (Chin Chu Rong, 2010)

During the assembly process, a total of 8 or more major components are

installed into the computer housing which include the processor chip, random access
memory (RAM), modem, motherboard, hard drive, soundcard, video card, network
card and CD drive (Chin Chu Rong, 2010).

The motherboard which is also the heart of a computer is installed into the
housing and the RAM and processor chip is installed onto the motherboard, most
Microsoft operating system uses a Pentium Chip while Apple computers uses an ASeries chip. The internal speakers are then installed followed by the hard drive, disk
drive and CD drive. All the major components are attached via cables to the
motherboard which allows each component to function as a unit. The power supply is
then applied and as well as other additional components such as the video card, and
the modem which are added near the final stages of assembly (Chin Chu Rong, 2010).

After the assembly process, comes the inspection and testing, inspectors who
run the inspection process ensure that the components installed are correctly and
properly installed to prevent any problems while operating the computer. The
Complementary metal-oxide semiconductor-circuitry (CMOS) is installed during this
time. The computer housing is then closed and is ready for testing. The testing of
finished products varies according to the company producing the product. A process
called burn in is done to check for any early faults in semiconductors devices which
usually have an operating electrical cycle of 48 hours, this is done to ensure all
components are working well (Chin Chu Rong, 2010).

Software

Computer software is generally divided into two parts which are the system
software which includes compilers, loaders and debuggers and application software
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which consists of word processor, spreadsheet programs and database systems (Beal,
2014).

The Software Development Life Cycle (SDLC) is a type of process model in

which software is developed from idea to product and includes a few stages. The first
stage is requirement gathering and analysis which involves meetings held between
managers and stake holders to determine the purpose of the software and the targeted
market, these requirements are determined from the expectations of the consumer
from the system. After these elements are determined they are analysed for their
validity (Parekh, 2013).

The next stage is the system and software design, this stage includes the
design of the end product and the requirement elements from the initial stage are used
as a guideline. A system design is then prepared which helps in defining the overall
structure of the system (Parekh, 2013).

After the system design is prepared, implementation and unit testing is done.
This stage is where the actual coding is implemented into the system, the system is
then divided into units which will be integrated in the next stage. The units are then
developed and tested to verify if the units meet the required specifications (Parekh,
2013).

The next stage is the integration and system testing which includes the
integration of the units developed in the previous stage to form a complete system.
This is then tested to analyse if the units are working together and if the system is
working as a whole. After the software testing phase is successfully completed, it is
ready to be delivered to customers (Parekh, 2013).

Question 2
Cause and Effect of Defective Apple Product
Despite being a brand well known for quality products, Apple Inc. has more
than a few defects in its previous products. The first of the many faults in the Apple
iPhone line up would be the iPhone 3G cases are cracking, the iPhone 3G which is the
third generation iPhone was released back in 2008 has had customers complaining of
the back case of the iPhone 3G that is cracking without being subjected to extreme use
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and careless handling. Some of the causes are poor design, manufacturing and
material. The cracking of the iPhone 3G can be harmful to users as the cracks may
form sharp edges that can injure the user. All these complaints can eventually cause
customers to lose confidence and trust in the product which can hinder sales of the
product (Zeigler, 2008).
Another issue that Apple Inc. is facing is the bending of the recently released
iPhone 6 plus. The iPhone 6 plus was released in 2014 and shortly after the release
customers have been complaining of the phone literally bending slightly when a
reasonable amount of pressure is applied to it. The iPhone 6 plus has a dimension of
158.1 x 77.8 x 7.1mm and is considered a long phone and has a weak point due to its
long structure, the body of the phone is composed of anodized aluminium which
normally would withstand pressure applied to it but due to the length, the body of the
phone is susceptible to bending. The bending of the iPhone 6 plus has brought about
dissatisfactory among consumers and can eventually effect the sales of the iPhone 6
plus if the issue is not dealt with (Esposito, 2014).
A recent issue regarding Apple Inc. online services which is the iCloud that is
meant to backup files in a cloud storage which means that no physical storage is used.
The recent issue is the leaked nude photos of 101 a-list celebrities from iCloud that
sparked an outraged which Apple Inc. has to answer for. A Phyton script which is a
high level programming language emerged on GitHub which is a repository hosting
service that allowed some malicious software hackers to repeatedly guess a users
password until they discover the right one, this vulnerebility can be traced back to the
Find My iPhone service which does not send any form of alert message to the user
regarding a breach. The 2014 celebrity nude photo leaks have sparked a lot of
controversy surrounding Apple Inc. and many have lost confidence as customers fear
for their personal information being hacked and leaked especially high profile
individuals (Williams, 2014).

Actions to Improve Outsourced Troubles

The first outsourcing problem that Apple Inc. is facing is the abuse of overseas
workers. Foxxcon employees are threatened to give good feedbacks about the
company or they will face a pay reduction as well as hiding underage employees
before auditing. (Hammel, 2012) Besides that, the employees work in very poor
conditions and a low salary of 1.12 an hour as well as long working periods.
(Cooper, 2103) This makes customers question the mortality of purchasing the
product. (Gonzales, 2012) This problem can be solved by implementing a strict
regulation to ensure International Labour standards are met, this includes elimination
of underage labour and discrimination of workers should be taken seriously, issues
such as poor working conditions as well as social security should be dealt with.
(International Labour Organization, 2014)

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Besides overseas worker abuse, Apple Inc. supply chain is another issue that
should be dealt with. Apple Inc. supply chain model is set-up to give the company
control over the design of the product down to the slightest detail as well as maximum
visibility. In recent years, Apple Inc. has employed engineers and supply chain
managers from the Asian region that may increase production to compete with the
high amount of mobile devices that China and Taiwan are producing. This has been a
smart decision in recent years but recent shifts in mobile device supply chain are
allowing mobile devices of different brands come to the market much faster which are
putting a strain Apples supply chain. A way to deal with this issue is to develop a
strategic method to increase the speed of the supply chain to respond quickly to
market feedback. Apple should also having a backup plan to fall back on such as
investing in alternative technology to protect the company against large scale supply
chain risk (Williams, 2014).
Apple Inc. also faces an innovation problem that needs to be resolved, an idea
such as the iPhone that will take the electronic market by storms. This of course isnt
easy and Apples core customer-centric approach stressed on a very narrow scope of
brand and product focus, the company has run dry on new ideas. Apples future
customers are the resource hungry growing global middle class who may present large
scale structural problems or opportunities with the rate of development. The company
needs to come up with a new method to tackle the fast paced development era of
today, and also a goal or target in the coming years and how to solve problems and
profit from it. This will boost customer confidence and help Apple achieve the trillion
dollar capitalization (Shaughnessy, 2013).

Obstacles
Despite outsourcing issues which can be solved with a couple of
improvements on certain aspects, there are more than a few obstacles that may hinder
any attempt at a solution. Most outsourcing problems faced by companies are the
cultural differences which take up a large percentage, this can be due to lack of
cultural compatibility as well as poor relationship management. Communication
should be the main priority for any business relationship, in the case of Apples china
offshore companies communication barrier can be fixed by providing staff training
and team building to provide a better understanding between employer and employee
(Outsourcing Factory, 2008).
Besides that, another obstacle faced by Apple Inc. is the outsourced companies
that Apple Inc. is in contact with may not be willing to invest money on a plan that
Apple Inc. proposes to reduce any problems within that company, these outsource
companies may feel the changes brought forward are not worth the investment. This
can seriously effect and make suggestion that Apple brings forward difficult to
communicate to their outsource partners (Russell and Taylor, 2011).

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5.0 Cost Perspective

Question 1
How reducing quality affects Apple.inc financially.
Apple Inc. is a multinational corporation well-known in the Silicon Valley that
produces expensive high tech electronic products such as smartphones and computers
with their own operating systems installed. Products like that have qualities from
different dimensions that have to be maintained for better user experience. (Roberta S.
Russell, Bernard W. Taylor, 2011)
The qualities in Apple.inc electronic devices that will be demanded by the market are
the following:

Performance quality of an iPhone is about how well it carries out its basic
communication functions as a phone such as phone calls and messaging.
Feature quality talks about extra items or functions added to it, namely, the
planners, browsing function, retina display, etc.
Durability talks about how long a product lasts before it needs a replacement.
Standard iPhones lasts about an average of 2.5 years.
Reliability is the probability a product will operate smoothly within an
expected period of time, which is about 2 years told by iPhone distributers.
Serviceability is how easily a repair can be done on a damaged product. Apple
Inc. products are reported to be very difficult or not possible to be repaired on
user-end, even a factory repair will take days to complete.
Aesthetics talks about how human senses perceive a product through sight,
sound, smell etc. iPhones and Mac are well-known for their own unique
design that is clean, neat, slick and minimalistic.
Perceptions, the subjective quality of a product based on advertising and
branding. The brand name Apple is simple and catchy, which sinks deep into
consumers mind easily.
Conformance is about how well a product can meet its pre-established
standards. In Apple Inc. its products always meets its required standards
according to users.
Safety of a product depicts assurance to the user that they will not get hurt by
it. If used appropriately, Apples products are very safe to use since there are
seldom any reports about Apples devices having faults that endangered users.
(Roberta S. Russell, Bernard W. Taylor, 2011)

Communication and computing technology produced by Apple Inc., namely

the iPhone and the Macintosh computers are one of the most used electronic tools in
the world today because they had been producing products on the market that has
always been on par with all other similar technologies in the market in their respective
product versions launch time. If these qualities had been reduced, there will be

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several increases in the cost of the product caused by poor product quality. (Roberta S.
Russell, Bernard W. Taylor, 2011)
As product quality reduces, failures will emerge, which creates new types of
cost to be paid, the internal failure cost and external failure costs. For example, a
reduction in durability and reliability by using lower grade materials for the iPhone
casing will induce scrap costs, re-work costs and price-downgrading costs. Scrap costs
are indirect costs that will be charged to the Apple Inc. when poor quality iPhones are
discarded, such as labour costs for assembly workers, material costs, costs of
transporting materials to assembly factories etc. Re-work costs are charged when
defective iPhones needs a re-work for quality conformance. iPhones with low quality
is sellable only at a discounted price, costing the corporate a price-downgrading cost.
All these costs are types of internal failure costs, which hurt Apple Inc.s financial
status directly by increasing product costs and reducing profit. The productivity and
profit margin will slowly deteriorate as the gap between the cost and the revenue gets
closer. (Roberta S. Russell, Bernard W. Taylor, 2011)
External failure costs are cost that are created much more easily and are much
more sensitive to quality change when whatever qualities mentioned above is reduced.
Simply by using a cheaper material with lower durability for the parts of a MacBook
will cause customer complaints, product returns and warranty claims to rise quickly.
Customer complaints induce labouring costs for investigation and respond to
MacBook users. Product return and warranty claims both incurs the cost for handling
and replacing faulty MacBook returned by customers to comply with warranty terms.
Also, by reducing the safety quality in Apple Inc.s product, if accidents happen,
litigation costs have to be paid for customer injury and lost sales costs is incurred as
customers will be highly dissatisfied, and will not purchase additional Apples
products. (Roberta S. Russell, Bernard W. Taylor, 2011)
Both the failure above heavily taints Apple Inc.s reputation, which will lead to
much more dire consequences in their financial status. Much dissatisfaction will rise
upon stakeholders of the corporate, whether internal or external. (Jenny Rayner, 2003)
External stakeholders such as suppliers, shareholders and employees will be
unwilling to grant benefit to Apple Inc. Suppliers will cut their supply chains and
refuse to sign for partnership agreements, resulting in process downtime, labour costs
to look for new supplier and might have to settle with other expensive supplying deal.
While shareholders and investors will of course hold their shares for their financial
protection. Financial regulators and insurers will also keep a closer eye on Apples
financial status and be stricter on it. On the other hand, the U.S government that has
funded Apple Inc. in their research might discontinue the funding, and eventually
Apple.inc might fall into a financial crisis, since the U.S government has been funding
Apple Corporation all along since the early stages of the company. Internal
stakeholders such as employees will be stressed out from all the extra work, resulting

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in bad workers health or demotivation, reducing production efficiency. (Jenny
Rayner, 2003)
In a nut shell, for whatever the intention is, reducing quality on a product that
is quality dependent in its sales is an unwise choice especially for expensive products
like the Apple iPhone. This is because by doing so, the end results will be inducing
much more costs indirectly, sales and revenue will fall, and reputation of the corporate
will be tainted.

Question 2
Appraise the cost/profit to maintain product quality and global
reputation.
A corporates profit margin that has been decreasing calls for an inspection to
be conducted, then stricter actions must be taken to rectify anything that has went off
course. If the problem turns out to be originating from a poor product quality, or poor
reputation, there are a few examples of actions that can be carried out to address for
their respective internal problems to reduce cost and increase profit of the corporates
finance.
Product quality rating falls when management of the Apple corporates
operation starts to get loose, close monitoring executions can be invested in to prevent
this. One of the aspects that close monitoring can be implied on is the monitoring of
employees. Human resources can be monitored by directors to change the standards of
requirement for workers to work in Apple Inc., or an investment in staff training
courses is also a wise solution, to upgrade the technical skills such as assembly
techniques or repairing skills of Apple products in assembly workers, or in soft skills
for geniuses (Apple support crew that works in retail stores) to deal with public
relations. Highly skilled personnel working in the Apple Inc. will be increased, and as
higher intellect supervising workers increases, better supervisory jobs are done which
also influence their subordinates positively no matter if its in the internal or the
external sections of the company. Internal workers that are closely monitored
produces good quality Apple products, which also reduces internal failure costs
resulting from poor quality such as scrap costs and rework costs, and also reduces
external failure costs such as customer complaints and product return costs. While
trained external workers or the geniuses with good courtesy could satisfy customers
by giving good customer service and response, along with the reduction of internal
and external failure costs, reputation of the corporate will rise slowly. In long term,
sales and revenues will increase, thus, increasing profit. (Roberta S. Russell, Bernard
W. Taylor, 2011)
The implementation of stringent regulations and management is nevertheless,
a wise option to improve overall productivity in Apple Inc. Firstly, the regulation of
staff in Apple Inc. is important to keep the productivity of the company up. To
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completely assess every staff in Apple Inc. efficiently, extra costs will be incurred
such as labour costs for conducting the assessment of performance, or equipment
costs for a punch card attendance machine for attendance. In the long run, Apple Inc.
will benefit from this operation as compared to no action taken, because productivity
will be consistent thus, maintaining product quality too. Another type of regulation is
the regulation of products, such as material selection, manufacturing processes,
inventory costs etc. Apple Inc. does outsourcing of readily made parts for their
electronic products since its more cost-efficient this way, but quality of supplied parts
should be monitored strictly by reviewing process plans and assembly charts to
prevent quality issues or defects in the final products. For further assurance, qualitycontrol process is important in making sure a products conformance is met, for
example the statistical process control (SPC). This could also assist in making sure the
standardization of products that is crucial in maintaining product quality of
serviceability and conformance. Strict regulation has clearly shown that it reduces
unnecessary costs and increases profit of Apple.inc while maintaining the product
quality. (Roberta S. Russell, Bernard W. Taylor, 2011)
Conducting an audit on a company is very necessary to keep the profit up and
the reputation up. By conducting an audit in Apple Inc., an evaluation of risks,
controls and operational issues can be made to further understand the efficiency of
how Apple.inc operates and actions can be taken to improve any inefficient programs,
thus the reputation and product quality of Apple can be maintained in the coming
years. Firstly, an auditing on labouring will directly influence product quality. An
assessment on the competency of workers such as assembler can stop bad and
inconsistent quality production. In an Apple audit report in year 2013, 74 underage
labour violations has been found in one of Apples circuit board supplier, and the
partnership was ended immediately to prevent defective productions and bad
reputation taint. Labour rights of wages and max working hours must also be abide
closely, because low wages and excessive working hours will cause stress in the
workers which may decrease their performance and impact product quality.
Environment issues and Ethics are important aspects for the reputation of Apple.inc
too and must not be left out. In the same audit report as above, one of Apples supplier
have been put on probation for dumping hazardous waste in toilets. Last but not least,
a review for management system is a must for an audit report, since it is associated
with many different factors that affect product qualities too such as workers work
competencies and suppliers resources. (Mikey Campbell, 2013)
Every worker has the right to a safe and healthy workplace. Human factors are
mainly the cause of injuries, such as being ignorant of known hazards, or performing
task without proper education. Any accidents or injuries hurt both the profit and the
reputation of a company. For Apple.inc, extra consideration must be taken for
Occupational safety and health since their factories produces electronic devices, and
most probably workers work alongside with dangerous electricity hazards. Safety and
health management is so important for maintaining product quality because it keeps
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the good workers around for much longer, allow workers to perform at their full
capacity, and allow workers to concentrate on quality instead of worrying about
harmful hazards. In the long terms, costly medical care compensations, recovery of
workplace, and downtime costs can be avoided, thus profits the company Apple.inc
more. Also, any accidents or injuries will surely taint Apples reputation as a
manufacturer of electronic devices, and since this company is well-known worldwide,
bad incidents impacts Apple.inc much badly. (Roberta S. Russell, Bernard W. Taylor,
2011)

6.0 Conclusion
Outsourcing is the partnership or contracting of a company or individual to
complete a specific task or function, almost all companies outsource in one way or the
other. Outsourcing has been around for a very long time but only in recent years
companies started utilizing the outsourcing model to narrow down certain aspects
such as salary, data entry and billing. These aspects could be taken care of more
efficiently by different companies highly specialized facilities and trained employees
(Schaffhauser, 2005). Apple is a mega corporation that outsource the manufacturing of
their products as it is more cost effective and it is a better deal to outsource than
handle the work internally.
The manufacturing process of a computer is indeed a complex one from the
designing all the way to the finished product and requires a company to have a wellstructured facility in order to mass produce a computer to be sold on the international
market. The process requires a lot of time and joint effort of the employees working
the assembly line production as it is more efficient in comparison to a single assembly
done by a single person (Chin Chu Rong, 2010).
Apple is indeed a well-known multi-billion dollar company but this doesnt
stop them from stumbling on a few obstacles such as major problems with their
outsourcing, this includes the harsh and poor working conditions of overseas
employees and the defects in their products. With such problems coming up, rumours
are the company reputation can be tarnished. Any effort to resolve this issue are faced
with obstacles that hinder a solution such as lack of cultural compatibility and the
unwillingness of outsource companies to invest money to make any changes proposed
by Apple (Russell and Taylor, 2011).
By examining the cost perspective of Apple products in terms of reduced
quality, this is not a smart move as reducing quality on a product that is quality
dependent in its sales is an unwise choice especially for expensive products like the
Apple iPhone. This is because by doing so, the end results will be inducing much
more costs indirectly, sales and revenue will fall, and reputation of the corporate will
be tainted (Russell and Taylor, 2011). Besides that it is also important to keep in mind
that workers are the heart of the company and that it is essential that workers and
employees are given the necessary needs and rights as well as having their rights
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respected to ensure a conducive work environment which indirectly boost
productivity (Chand, 2014).

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